More REITs Likely To Go Private, Banker Says

Scott Schaevitz, co-head of Americas real estate investment banking at Barclays, joined REIT.com for a video interview at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT at the Wynn Las Vegas.

Schaevitz said the window for more REITs to go private remains open.

“Last year, a handful of companies were trading at discounts to net asset value (NAV). Now, you have huge portions of the REIT market that are trading at discounts,” he observed.

Generalist investors in the public market are selling their dividend stocks because of fears of interest rate increases, Schaevitz noted. As a result, REITs are likely to continue to trade at a discount to NAV, which Schaevitz said creates a lot of targets for privatizations.

Schaevitz added that the discount to NAV is necessary for these go-private transactions to occur because it compensates for the expenses of paying a premium for the shares and transaction costs.

In addition to the NAV discount, go-private transactions are likely to be fueled by the “wall of capital” on the private side, Schaevitz said.

“The United States is still a great place to be buying real estate, and you have a lot of money in the private equity funds. More money was raised this year than any time since the crash, so I think the momentum is in the right direction for this,” Schaevitz noted.

As for particular REIT sectors that may be more receptive to go-private transactions, Schaevitz emphasized that he looks at potential targets on a case-by-case basis.

“Not only do you need a discount to NAV to look at a potential go-private, but you also need a board of directors that’s open to the idea and also a management team that’s open,” he said. Schaevitz noted that as management teams see their peers take the private route, they are becoming increasingly comfortable with the idea.

Meanwhile, Schaevitz said he expects a limited number of initial public offerings (IPOs) in 2016.

“It’s very tough to get an IPO done,” Schaevitz observed. The general mood in the market is holding up deals, he said. An additional factor is that IPOs are usually priced at a discount to their peer group.

“If that peer group is already trading at a discount to NAV, you really have a double discount that you have to deal with. It makes it very difficult for the math to work,” he said.